Please see the disclaimer at the bottom of this blog before using this resource to inform your business decisions.
Starting or running a private practice is a deeply personal and rewarding journey. You’ve spent years studying, training, and dedicating yourself to helping others — but chances are, your education didn’t include courses on business structures, taxes, or liability protection.
Yet, choosing the right business structure is one of the most important financial and legal decisions you’ll make as a private practice owner. It affects how you pay taxes, protect your assets, and plan for growth. Unfortunately, it can also feel overwhelming — especially when you’re already balancing client care, paperwork, and the emotional demands of therapy work.
The good news? You don’t have to be a business expert to make a smart choice. This guide breaks down the three most common business structures for therapists:
- Sole Proprietorship – The simplest, most affordable option but with personal liability risks.
- Limited Liability Company (LLC) – A great balance of liability protection and tax flexibility.
- S-Corporation (S-Corp) – A tax-efficient structure for profitable practices planning to grow.
By the end of this guide, you’ll have a clearer idea of which structure aligns with your financial needs, risk tolerance, and long-term practice goals — so you can make an informed, confident decision.
Key Factors to Consider When Choosing a Business Structure
You don’t need to become a legal expert overnight, but it helps to understand a few key areas when choosing how to structure your private practice. Let’s break it down:
1. Liability Protection
If something goes wrong — whether it’s a lawsuit, unpaid debt, or unexpected business crisis — your business structure determines whether your personal assets (like your house, car, or savings) are at risk.
- Sole Proprietorship – No separation between you and your business. If your practice is sued, your personal assets are vulnerable.
- LLC – Your business is legally separate from you, protecting your personal assets from lawsuits or debts.
- S-Corp – Offers the same liability protection as an LLC but with additional corporate requirements.
2. Tax Implications
Therapists already juggle enough paperwork — so understanding how your business structure affects your taxes is essential.
- Sole Proprietorship – You report all business income on your personal tax return and pay self-employment taxes (15.3%) on everything you earn.
- LLC – By default, taxed the same as a sole proprietorship, but you can choose to be taxed as an S-Corp to lower self-employment taxes.
- S-Corp – You pay yourself a salary + distributions, which can reduce self-employment taxes compared to an LLC.
3. Administrative Requirements & Costs
Some structures are low-maintenance, while others require more paperwork, fees, and legal compliance.
- Sole Proprietorship – Easiest to set up, little to no paperwork required.
- LLC – Requires filing Articles of Organization, paying fees, and submitting an annual report (varies by state).
- S-Corp – Must file Articles of Incorporation, hold shareholder meetings, and follow corporate formalities.
4. Flexibility & Scalability
Think about where your practice is now and where you want it to be in 5-10 years.
- Sole Proprietorship – Best for solo therapists who don’t plan to hire employees or expand.
- LLC – Great for small practices with the option to add partners or employees later.
- S-Corp – Ideal for therapists planning to scale their business, hire staff, or open multiple locations.
5. State-Specific Regulations
Each state has different fees and requirements, so it’s essential to research your state’s business laws.
- Some states charge LLC franchise taxes or renewal fees.
- S-Corps have ownership restrictions (e.g., only U.S. citizens can be shareholders).
- Most states require LLCs, corporations and partnerships to register with the Secretary of State’s office where they conduct business activities.
Some states may only allow one business structure over the others, so please always check with the states that you are licensed in and where you are conducting business, and paying taxes. Below are states with specific requirements — this is not an exhaustive list:
- California: Mental health professionals are restricted to either a sole proprietorship or a professional corporation. LLCs and PLLCs are not permitted for therapists in California.
- Florida: Mental health professionals may form a Professional Limited Liability Company (PLLC), which is similar to an LLC but requires all members to be licensed professionals.
- Illinois: Mental health professionals can form PLLCs, but all members and managers must be licensed in the same profession.
- Pennsylvania: While specific requirements are not mentioned, mental health professionals must ensure their chosen business structure complies with state regulations.
Sole Proprietorship: The Simplest Option
What It Is
A sole proprietorship means you and your business are legally the same. It is the default business structure when you start a private practice without formal registration. The business is legally tied to you — all income, debts, and liabilities belong to you personally. You don’t need to file separate business taxes, and there’s no extra paperwork beyond any necessary therapy licenses or permits.
Pros & Cons
✅ Easy & cheap to start – No formal registration required like business formation documents.
✅ Full control – You make all the decisions without a board or partners.
✅ Simple tax filing – Report business income on your personal tax return (Schedule C).
❌ No liability protection – Personal assets are at risk.
❌ Harder to get business loans or funding.
❌ Higher self-employment taxes.
Who Should Choose a Sole Proprietorship?
- Solo therapists with low liability risks.
- New practitioners testing the waters before committing to a formal structure.
Limited Liability Company (LLC): Balancing Liability Protection & Simplicity
What It Is
An LLC legally separates you from your business, protecting your personal assets while offering flexible tax options.
Pros & Cons
✅ Protects personal assets like your home and savings from lawsuits & debts.
✅ Flexible tax options – Can be taxed as a sole proprietorship or S-Corp.
✅ Less paperwork and compliance than an S-Corp.
❌ Self-employment taxes still apply (unless you elect S-Corp status).
❌ More paperwork and costs than a sole proprietorship.
❌ Some states impose additional LLC fees.
Who Should Choose an LLC?
- Small practices needing liability protection.
- Therapists planning for long-term growth but still needing flexibility.
S-Corporation (S-Corp): The Tax-Efficient Choice
What It Is
An S-Corp is a corporation that avoids double taxation by passing profits directly to the owner(s), while reducing self-employment tax obligations.
Pros & Cons
✅ Reduces self-employment taxes – Pay yourself a salary plus distributions.
✅ Personal asset protection.
✅ Great for expanding practices.
❌ More paperwork & compliance — Requites bylaws, board meetings and payroll compliance.
❌ Must pay yourself a “reasonable salary”.
❌ Limited to 100 shareholders (all must be U.S. citizens).
Who Should Choose an S-Corp?
- Private practices with significant profits.
- Therapists who are comfortable handling administrative work.
Comparison Table: LLC vs. S-Corp vs. Sole Proprietorship
Choosing What’s Right For You and Your Practice
It’s completely normal to feel overwhelmed by these decisions — after all, you trained to be a therapist, not a business owner! But just like therapy itself, this is a process of discovery, learning, and growth.
Consider these four questions as you navigate through your options:
- Assess your liability risk – Do you need protection from lawsuits?
- Consider tax implications – Are self-employment taxes a concern?
- Factor in administrative work – Do you want minimal paperwork?
- Think about growth – Will you expand or hire employees?
If you’re just starting out, a sole proprietorship might be the easiest way to begin. If you want to protect your personal assets while keeping things simple, an LLC is a great middle ground. And if you’re building a profitable practice and want to optimize your taxes, an S-Corp might be worth the extra paperwork.
There’s no one-size-fits-all answer. The best structure is the one that fits your unique goals, comfort level, and long-term vision. If you’re unsure, don’t hesitate to consult an accountant or business attorney for guidance.
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be considered legal, financial, or tax advice. Business structures, liability protections, and tax regulations can vary by state, county, and individual circumstances. While we strive to provide accurate and up-to-date information, laws and regulations may change, and the applicability of certain provisions may depend on your specific situation. Before making any decisions regarding the structure of your private practice, we strongly recommend consulting with a qualified accountant, business attorney, or other relevant professional who can provide guidance tailored to your needs. Additionally, be sure to check with your local or national regulatory body and licensing board to ensure compliance with all applicable laws and professional requirements. Owl Practice and its affiliates are not responsible for any actions taken based on the information in this post. Use of this content is at your own discretion.
Helpful Resources
US Department of the Treasury Small Business Resources
Owl Practice – Resources for Building Your Practice
By taking the time to make an informed decision now, you’re setting your practice up for long-term success and sustainability — so you can focus on what really matters: helping your clients thrive.
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